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Disney Enterprises, Inc. v. VidAngel, Inc.

IP/Entertainment Case Law Updates December 12, 2016

District court grants four major movie studios’ request for injunction against streaming service that filters out objectionable content for customers, finding that studios were likely to succeed on their DMCA and copyright infringement claims.

Major film studios Disney Enterprises Inc., Lucasfilm Ltd. LLC, Twentieth Century Fox Film Corporation and Warner Bros. Entertainment Inc. sued VidAngel Inc., an unlicensed video-on-demand streaming service that allows customers to filter out objectionable content and stream a movie or television show through VidAngel after purchasing a physical DVD or Blu-ray disc through the service. The studios alleged that VidAngel violated their rights pursuant to §1201(a) of the Digital Millennium Copyright Act (DMCA) and under §106 of the Copyright Act, and moved for a preliminary injunction.

VidAngel Inc. operates an unlicensed video-on-demand streaming service for movies and television shows that filters out objectionable content as directed by customers. To watch a movie or television show on VidAngel, a customer must first purchase a physical copy in DVD or disc format from VidAngel, and then choose the type of content within the work to be filtered out, such as nudity or obscene language, before receiving video available for streaming. Customers may or may not choose to receive a physical copy of the video. Once the video has been streamed and watched, the user can resell it to VidAngel for a partial credit.

The district court granted plaintiffs’ motion for preliminary injunction, finding that the studios had shown a “strong likelihood of success” on the merits of their DMCA and copyright claims.

The DMCA provides that “no person shall circumvent a technological measure that effectively controls access to a work protected under this title.” The studios argued that VidAngel circumvented the technological protections on their DVDs or discs by decrypting the DVDs or discs for purposes of uploading onto a computer, in the process removing restrictions on encryption. VidAngel argued that this activity didn’t amount to circumvention because it was only decrypting DVDs to allow them to be viewed in another way, a procedure known as reformatting or “space-shifting,” and that space-shifting is legal when performed for disc purchasers who elect to have their DVD content streamed rather than receiving the physical discs.

The court rejected VidAngel’s argument that the DMCA exempted space-shifting, finding that Section 1201(a)(3)(A) of the DMCA exempts from liability those “who would ‘decrypt’ an encrypted DVD with the authority of a copyright owner, not those who would ‘view’ a DVD with the authority of a copyright owner.” According to the court, the purchase of a DVD conveys only the authority to view the DVD, not to decrypt it, and VidAngel had not offered any evidence that the studios have either explicitly or implicitly authorized DVD or disc buyers to circumvent encryption technology in order to view the DVD or disc on a different platform such as VidAngel’s streaming service.

The district court also rejected VidAngel’s argument that the Family Home Movie Act (FMA) expressly allows a third party to filter and transmit content as specified by a lawful owner of a copy as long as a fixed copy of the altered content is not created, noting that the argument was unsupported by the clear language of the statute, and that the legislative history directly contradicted VidAngel’s argument that the FMC provided an exemption to the anti-circumvention provisions of the DMCA.

The studios also asserted that VidAngel violated two of their exclusive rights under the Copyright Act: the right to reproduce their works by making copies and the right to publicly perform their copyrighted works. With respect to the reproduction right, VidAngel admitted to making copies of plaintiffs’ works onto a computer system and third-party servers, but argued that they are only “intermediate” copies and therefore not protected by the Copyright Act. The district court rejected the argument that intermediate copying was not prohibited by the Copyright Act, pointing out that “in order to constitute a ‘copy’ for purposes of the Copyright Act, the allegedly infringing work must be fixed in some tangible form, ‘from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.’” VidAngel’s fragmented copies may not be able to be perceived directly by consumers, but they can be perceived with the aid of VidAngel’s software, noted the district court, and the copying performed by VidAngel falls within the category of acts proscribed by the statute.

With respect to the public performance right, VidAngel argued that it does not engage in public performances because it streams only filtered versions of works created at the direction of and owned by its customers. In so arguing, VidAngel relied on language in the Supreme Court’s 2014 decision in Am. Broad. Cos. v. Aereo Inc., stating that a transmission of a copyrighted program is not made to “the public” when it is made “to those who act as owners or possessors of the relevant product.” However, even assuming arguendo that VidAngel’s buy/sell-back service creates a valid ownership interest in a DVD, the district court found that this ownership would apply only to the physical DVD or disc and not to the digital content that VidAngel streams to paying subscribers. VidAngel subscribers view the stream from a master copy stored on a server, not from a DVD or disc “temporarily” owned by the user.

The district court again rejected VidAngel’s arguments under the FMA, finding that the FMA exempts only (i) the “making imperceptible” of limited portions of a motion picture, and (ii) the “creation or provision of a computer program or other technology that enables such making imperceptible.” 17 U.S.C. § 110(11). According to the court, the statute clearly requires that a performance or transmission of filtered content must come from an “authorized copy” of the motion picture, but the digital content that VidAngel streams to its customers is not from an authorized copy — rather, it streams from a digital copy that it acquires by circumventing technological protection measures on the studios’ DVDs. Finally, the district court rejected VidAngel’s “fair use” defense, finding that its commercial use of the copyrighted works was not “transformative” because it did not add anything to the studios’ works, and simply omitted a small percentage that viewers found objectionable.

In granting the preliminary injunction, the district court found that studios demonstrated a likelihood of imminent irreparable injury. It noted that the studios strategically release their content across different distribution channels and to different licensees to generate revenue on their movies and television shows, and negotiate exclusive time windows for performing a title with different licensees. The studios maintained that VidAngel interferes with their right to control how, and through which channels, consumers can view their copyright work, because VidAngel operates without a license and performs the studios’ works during the exclusive period, which frustrates the studios’ ability to negotiate for similar rights in the future. In addition, VidAngel’s actions threatened to harm the studios’ relationships and goodwill with authorized distributors, the district court noted.

Accordingly, the district court enjoined VidAngel from (1) circumventing technological measures protecting the studios’ copyrighted works on DVDs, Blu-ray discs or any other medium; (2) copying the studios’ copyrighted works, including but not limited to copying the works onto computers or servers; and (3) streaming, transmitting, or otherwise publicly performing or displaying any of the studios’ copyrighted works over the internet through such websites as VidAngel.com, via web applications (available through platforms such as the Windows App Store, Apple’s App Store, the Amazon App Store, Facebook or Google Play), via portable devices (through applications on devices such as iPhones, iPads, Android devices, smartphones or tablets), via media streaming devices (such as Roku, Chromecast or Apple TV) or by means of any other device or process.

Finally, the district court imposed a bond for $250,000, instead of the $50 million requested by VidAngel.